Chief Judge Rader: “We Need to Tolerate A Little Injustice”

On Friday, September 30, 2011, the University of New Hampshire School of Law celebrated the opening of the newly minted Franklin Pierce Center for Intellectual Property. Many of those in attendance were distinguished alumni and numerous Judges. Three Judges from the United States Court of Appeals for the Federal Circuit were on hand — Judges Rader, Newman and Gajarsa specifically.

During his contemporaneous, unscripted speech, Chief Judge Randall Rader made several remarks about the access to justice that raised some eyebrows.  On Friday we were told that we need to tolerate the injustice of certain rules that might lead to an unfair result, but then on Saturday morning during the Judges’ panel we were told that rules of thumb couldn’t and shouldn’t apply to the law of damages. Rader on one hand was saying that certainty and relatively bright line rules are necessary to control the process of litigation, but then on the other hand saying that a flexible, case-by-case approach needs to be what we pursue.  In short, it seems to me that Judge Rader wants to have his cake and eat it too!

I dissented in person, and I dissent here and now.

In his remarks at the dinner Friday evening Chief Judge Rader discussed his view that we need to be willing to tolerate a little injustice in search of the broader good of the system. I think it is probably fair to say that initially this caught many by surprise, but by the end of his remarks it was clear what he was talking about, although it seemed to me that some (if not many) were in disagreement with the Chief.

One of the recurring themes of the day leading up to Chief Judge Rader’s remarks was access to justice for all.  It was recognized that access to justice to all within the patent space is simply not happening and something needs to be done.   The cost of bringing a litigation to enforce rights you lawfully own is frequently prohibitive for small businesses, or even well established businesses. Paying your attorneys multiple millions of dollars to litigate is something that many simply cannot do.  It is hard to argue with this truth we all know to be accurate.

One of the things that Chief Judge Rader noted was the fact that litigations are so large, almost without bound, which is indeed also true.  He then went on to discuss discovery and how tens of thousands of documents (or more) are requested and produced during discovery in a typical patent litigation and how maybe a few hundred are actually listed on the exhibit list and an even smaller number, maybe 20 or 30, actually submitted into evidence. Rader explained something needs to be done, limits on discovery need to be placed and we need to be ready to deal with the reality that in order to make a more streamlined and efficient process there will be situations where injustice is the end result. He said over and over we need to tolerate that injustice when it arrives, knowing that we have achieved even greater justice (and access to justice) by having a more efficient system.

Among those I spoke with after the speech it is fair to say that Judge Rader’s remarks went over like a led balloon. As one of my colleagues point out, essentially Chief Judge Rader was saying that he wants more litigation that is less certain, more prone to error and calculated to lead to discriminatory injustice. It was hard to argue with that characterization. Indeed, I was uncomfortable myself by what Rader said, but in the end if we really are going to have a more efficient system that is streamlined I’m willing to sign up for that regime.

Such an efficient regime obviously requires bright-line rules, which everyone except for the Supreme Court seems to understand are critical for the patent system. Bright-line rules seem particularly appropriate for a property rights based system, which is what the patent system is supposed to be, after all.

Uncertainty is the undoing of business and the death knell of a property rights system. It would be hypocritical of me not to be willing to pursue a more streamlined, efficient regime, having long railed against the Supreme Court for throwing out bright-line rules that work well and inform everyone as to what the law is.  Having said that, we all know that such a regime won’t stand as long as this Supreme Court does not change in philosophy or personnel. Bright line rules are what we need, but they are what the Supreme Court continually strikes down.  So this seemed like more of a thought exercise, although I suspect litigators in the audience listening to Rader discussion significant limitations on discovery were less than convinced.

Then on Saturday, during the Judges’ panel made up of Chief Judge Rader, Judge Pauline Newman and Judge Arthur Garjarsa, things turned toward the interesting, at least from my perspective.  Judge Rader started discussing the undoing of the 25% rule, which relates to the now defunct rule of thumb associated with setting a reasonably royalty rate. He went on and on about how there is no place in the law for a rule of thumb and how we really need to approach these things on a case-by-case basis applying the unique factual circumstances of each case in order to arrive at the correct result. Really? Quite interesting. Not even 15 hours earlier Judge Rader was waxing poetically about how injustice must be tolerated in the name of stability. He spoke about how we would have to tolerate reaching the wrong conclusions and living with that in favor of bright line rules. It seemed hypocritical.

Many will probably say I shouldn’t have asked the question, but I just couldn’t help my self. If stability, efficiency and a streamlined system that would result in injustice so as to create greater access to justice is desired then surely that has to apply to damages, right? After all, when you are talking about limiting discovery there is no victor yet.  There is no wrongdoer and aggrieved party, so we are just talking about setting the rules of the fight. But when you are talking about damages there is a victor and there is a tortfeasor. Why would you ever create a case-by-case approach to damages that would favor the tortfeasor? Why are we going to do whatever it takes to make sure that damages are exactly and perfectly calculated when we would at the same time be willing to suffer an erroneous result because the smoking gun wasn’t produced due to discovery limitations?

We can talk about making the patentee whole with damages, but is anyone every really made whole after years of patent litigation, all the expense and the toll it takes on business opportunity?  It seems a completely fictional goal to me.  The winners are those who don’t have to fight in litigation, so when a party prevails they should not just be “made whole.”  They should be made well more than whole.  How else are you going to discourage infringement?

The question I raised dealt with the reality surrounding what is called efficient infringement. If the threat of being sued is low and/or the threat of having to pay much of anything in damages is low then you might as well infringe. That is exactly what happens and everyone in the industry knows it. The giant companies play wars of attrition, dragging cases out as long as they can knowing that the process is expensive, the risk of losing is low and even if they do lose damages will be difficult to prove. If we are going to concern ourselves with access to justice that is the place to start, and when you throw out a rule of thumb, or starting point for damages and instead want to introduce an Antitrust-like economic analysis that is only going to make it easier to engage in efficient infringement and make it all the more unlikely that independent inventors, entrepreneurs and small businesses are going to be able to participate in the process of seeking redress for wrongs.

Excuse me for also noticing that throwing out the 25% rule simply inserts a different rule of thumb.  Rather than starting at 25% you start at 0%.  Does starting at 0% make any sense when infringement has already been proved and we know for certain that efficient infringement is ongoing? I just don’t see how we can serious discuss access to justice for all and not concern ourselves with making sure that enough damages are available to make cases attractive to contingency attorneys who might actually represent those independent inventors, entrepreneurs and small businesses that are so casually trampled.

It seemed to me that either Chief Judge Rader was not understanding my question, or perhaps he noticed I was pointing out an inconsistency in his positions. I asked if I could follow up. He said: “Sure, but you are not making any sense.” To that I responded: “Respectfully, Your Honor, we will have to agree to disagree because I think I am making a lot of sense.”

Chief Judge Rader did allow that when we are discussing ownership issues surrounding securing the right having bright line rules makes a lot of sense, but they make no sense with respect to damages. I would have loved to follow up and ask — well why do they make sense with respect to discovery? How do arbitrary limitations on discovery make any sense if you want a case-by-case search for fairness on damages? Why does the process of obtaining proof deserve to be manipulated and arbitrarily limited in such a way that we are just going to have to live with a little injustice?  Why not err on the side of protecting the rights of the patentee victim that prevails?  Turning damages into an Antitrust-like economic pursuit is just another way to make it more difficult for patentees to obtain redress for wrongs.  This, however, wasn’t the forum for such a continual back and forth with the Chief, but boy would it have been fun and I suspect a great, substantive discussion, not to mention interesting theater.

My position is clear. I am sick and tired of being told that patent matters need to be handled on a case-by-case basis, with no bright line rules, allowing for flexibility. Exactly what property law regimes have matters handled on a flexible case-by-case basis? Which property law regimes are without bright line rules useful to interpret both ownership issues and damages that result from misuse? And for crying out loud why would we continue to stack the deck against the victim?  Would we do that if we were talking about trespass of real property rights?

When dealing with damages we have already determined that there has been a trampling of rights, and that trampling is called infringement, which makes the infringer a tortfeasor; a wrongdoer. If we want to actually do something about efficient infringement we need to do the exact opposite of what the law seems to be heading for. We shouldn’t make it harder to obtain damages, if anything we should make it easier. What exactly is wrong with general rules, bright-line rules or rules of thumb that set damages high? The patent laws have always recognized the efficient infringement is a problem, which is why when setting a reasonable royalty one must keep in mind that an arm-length negotiated royalty is inappropriately low because there was not an arm-length negotiation, but rather a forced interaction. By either ignoring rights, not engaging in appropriate due diligence or through mistake the infringer engaged in activity that required the patent owner to go to great expense to seek redress for the right they lawfully own, which is an exclusive right. So excuse me for having absolutely no pity for those who have been adjudicated infringers.

Property regimes are certain, with predictable rules that can be understood by all and which foster the transference of assets, conveying certitude of ownership. In my opinion there is no place for a system where there is the search for certainty and fairness with respect to some issues while at the same time tolerating unfairness and injustice relative to other issues. That is a recipe for further erosion of the value of a patent by killing the rights of the patentee. Over the last 5 years we have seen an erosion of epic proportions. Now a victorious patentee isn’t even entitled as a matter of right to an order that demands the defendant not infringe moving forward, despite the fact that the patent right itself is an exclusionary right and such an injunction would merely restate the patent grant.

We can pretend that we have a system that is working, or we can recognize that they system is not working. For those who actually work with clients and hear from potential clients that we just reasonably cannot help within the current structure of the system, we know the problem with the system is uncertainty. We rail about the lack of understanding of the Supreme Court, which is a viewpoint seemingly shared by the Judges on the Federal Circuit. But at the same time the Federal Circuit seems nearly oblivious to the uncertainty that they themselves interject into the system, on an almost daily basis.

I wonder if the Judges on the Federal Circuit understand that there is really very little ability to predict the outcome of a Federal Circuit decision until you know which three judges have been assigned. It is a sad commentary when even those who watch the Federal Circuit closely can’t reliably predict the outcome of a Federal Circuit case until a panel has been assigned. How does that lend itself to predictability? How does that lend itself to certainty? How does this assist efficiency and streamlining? It doesn’t! Something is horribly wrong.

Either patents are property – assets to be obtained and owned – or they are not property. Increasingly the answer seems clear that patents are dangerously drifting toward irrelevance in a property sense. All you have is the expectation that at some point in time after great expense and great waiting, and after post-grant challenge after post grant challenge you might obtain some redress in the form of an unpredictable sum of damages for the trampling of your rights. Even if you prevail you won’t have a right to a permanent injunction, so you might have to live with someone violating your exclusive right and you not being able to stop them — unless of course you continue to bring infringement action after infringement act, as some on the Federal Circuit, including Chief Judge Rader, wanted to require in the Tivo/Dish matter. That hardly seems exclusive, does it?

While I respect Chief Judge Rader for all he has done within our industry, and while I frequently agree with his judicial decisions, I have to respectfully dissent here. I do think I was making sense, and I don’t think searching for just results some of the time is the type of discriminatory system that we want or need.  Either we need to tolerate a certain amount of injustice and gravitate toward bright-line rules on issues of importance to both patentees and defendants, or we need to get every issue of every case correct by engaging in a case-by-case approach. Either approach is intellectually honest and with their merits. We just need to pick a lane.  An erratic approach to patent procedure and patent policy is a bad idea.